ecb\s \super mario\ comes to rescue with surprise rate cut
Last Updated : GMT 10:19:13
Arab Today, arab today
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ECB\'s \'Super Mario\' comes to rescue with surprise rate cut

Arab Today, arab today

Arab Today, arab today ECB\'s \'Super Mario\' comes to rescue with surprise rate cut

Frankfurt - AFP

The European Central Bank\'s new chief Mario Draghi surprised financial markets with a rate cut at his first policy meeting on Thursday, helping to calm investors panicked by the eurozone debt crisis. But the former Goldman Sachs banker -- once dubbed \"Super Mario\" in his native Italy for his self-assured record -- appeared reluctant for the ECB to carry on playing crisis firefighter indefinitely, insisting it was up to governments to get their finances in order. The ECB\'s 23-member governing council voted unanimously to lower the rate for its main refinancing operations by a quarter of a percentage point to 1.25 percent at the regular monthly meeting here. This was the first such meeting to be chaired by 64-year-old Draghi and the rate cut came as a surprise as ECB watchers had not expected him to move just two days after taking over from Jean-Claude Trichet of France. Depressed European stock markets soared on the news although the gains then faded quickly as investors tried to keep track of developments in debt stricken Greece, the epicentre of the eurozone crisis. Draghi said the move was justified in view of the \"particularly high\" level of uncertainty and \"intensified downside risks\" facing the euro area economy. Indeed, some of the risks to growth had already started to materialise, making \"a significant downward revision to forecasts and projections for average real GDP (gross domestic product) growth in 2012 very likely,\" he said. More importantly, high inflation -- currently above target at 3.0 percent and likely to remain elevated \"for some months to come\" -- was no impediment to a reduction in rates, since it would come back down to below 2.0 percent during the course of next year, not least because of the anticipated downturn in growth, Draghi argued. Many people see the ECB as the only body capable of action to calm the markets in the current turmoil which intensified earlier this week when Greek Prime Minister George Papandreou announced plans to put the latest EU rescue deal for Athens to a referendum. But Draghi insisted, like his predecessor Trichet, that it was not the ECB\'s role to constantly bail out governments who had wantonly overspent and the bank\'s overriding priority was to guarantee price stability. In May 2010, the ECB embarked on a highly controversial programme of buying up bonds of debt-wracked countries\' debt if they found difficulty to drum up financing the usual way via the markets. But Draghi insisted the programme was \"temporary,\" \"limited\" and justified purely on monetary policy considerations. Furthermore, it was impossible for an institution like the ECB to keep sovereign borrowing costs artificially low for a sustained period, he said. The key to solving the debt crisis \"is not to count on external help that could alleviate temporary market pressures but to count on countries\' capacity to reform themselves with the right economic policies,\" Draghi said. Analysts were enamoured with Draghi\'s debut performance as ECB chief. \"What a starter! Super Mario is jumping ahead of the curve,\" said ING Belgium senior economist, Carsten Brzeski. The analyst said it was the deteriorating economic situation and the prospect of a mild recession that had been the main drivers of the ECB\'s decision. \"Of course, the ECB\'s main objective is to maintain price stability and not to support economic growth but at the current juncture, growth seems to be the main concern and inflation is considered to be a second-round effect,\" Brzeski said. Draghi\'s comments on the bond purchases demonstrated the ECB \"is not eager to take over the role of unconditional lender of last resort any time soon,\" he added. Berenberg Bank senior economist Christian Schulz agreed. \"The implication is that the -- leveraged -- EFSF (European Financial Stability Facility bailout fund) will be the next line of defence against contagion to Italy, not the ECB,\" Schulz argued. \"It will take much stronger market turbulence, a failure of the EFSF and possibly a failure of Italian bond auctions to force the ECB to step in. Despite the Greek shenanigans about a referendum, the market situation is by far not worrying enough for the ECB to pull out the ultimate stops,\" Schulz said. Jennifer McKeown of Capital Economics also believed that \"for now at least, the bank will not be buying enough bonds to provide the \'firewall\' that many commentators have called for.\" With the ECB \"clearly unwilling to adopt the role of bailing out indebted governments, any meaningful crisis resolution remains in the hands of the politicians,\" she said.  

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